Regional currencies struggle against the euro

08/06/2012

Amid political and regional turmoil, the Serbian dinar and Romanian lei have slid to record lows against the euro in recent weeks.

By Lily Lynch for Southeast European Times in Belgrade -- 08/06/12

The dinar has been weakening against the euro since January. [Lily Lynch/SETimes]

Economists speculate that the ongoing financial crisis in Greece, and Greece's share of both of the countries' banking sectors, is a main factor in the recent weakening of the national currencies of Romania and Serbia.

On Thursday (June 7th) the Serbian dinar got a slight boost from Tuesday's record low 119.10 trade against the euro, amid expectations that the Serbian National Bank would raise its benchmark rate.

"The executive board will be meeting to discuss the macro-economic situation in our country, and what to do with the currency will be a major focus of that discussion," Sladjana Prijic-Sladic, spokesperson for the Serbian National Bank, told SETimes.

The dinar has been in steady decline against the euro since January, but weakened significantly following the inconclusive May 6th parliamentary elections that left several parties scrambling to form a coalition. After the surprise May 20th victory of nationalist Tomislav Nikolic over liberal Boris Tadic, the dinar continued its rapid slide.

According to data from Reuters, the dinar has lost a total of 7.39% to the euro since the beginning of this year. In order to protect the dinar against further decline, the Serbian National Bank has sold nearly 1.3 billion euros out of its reserves.

The decline in the dinar's value has impacted citizens, who typically receive their salaries and pensions in dinars, but sometimes make certain payments in euros, and use euros when they travel abroad.

"My pension used to be around 500 euros per month. Now it's 420 euros. If this continues, I'll be losing almost 1,000 euros a year," Dobrivoje Miljkovic, 59, a retired engineer, told SETimes.

In neighbouring Romania, political uncertainty has also dented the country's currency. At the end of April, following a vote of no confidence, the new government was unseated after just two months in office. By the end of May, the Romanian lei, like the dinar, had fallen to a record low, trading at 4.4644 against the euro.

"In Serbia and Romania there are Greek banks, and with that comes many questions as to what will happen with Greece and the euro. Of course, if there are significant external shocks because of Greece, there could be other problems ahead," Vladimir Gligorov, an economist at the Vienna Institute for International Economic Studies, told SETimes.

Greek banks control about 16% of the banking system in both Romania and Serbia. In Bulgaria, Greek banks comprise 25% of the financial sector.

In Serbia, Gligorov predicts, the situation will stabilise with measures taken by the National Bank, and the formation of a governing coalition.

Though defeated by Nikolic, Tadic is hoping to retain his control over the government from the position of prime minister, though he has yet to secure a majority coalition in the 250-seat parliament.

While lingering political and economic uncertainties remain, Gligorov said the next few months will be an improvement.

"Currency-wise the situation seems to be stabilising, and probably will continue. Now that summer is coming, there will be an increase in tourism, visitors and so on. Summer brings stability," he said.

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